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Swiss Prosecutors Raid HSBC Subsidiary in Geneva After Tax Leaks

The country's attorney-general has opened a criminal investigation into alleged money laundering by HSBC Private Bank, following revelations suggesting the bank may have helped wealthy clients avoid the taxman.

by Sally Hayden
Feb 18 2015, 12:35pm

Image via Reuters

Prosecutors have raided HSBC's Swiss subsidiary in Geneva, after launching an inquiry into alleged money-laundering activities in the bank.

The search, which comes a week after leaked files surfaced indicating that the subsidiary may have helped wealthy clients avoid taxes, was led by Switzerland's Attorney General Olivier Jornot and First Prosecutor Yves Bertossa.

A statement released by the prosecutors said: "Following the recent revelations related to the HSBC Private Bank (Switzerland), the public prosecutor announces the opening of a criminal procedure against the bank... for aggravated money laundering."

"The investigation might be broadened to include physical persons suspected of committing or participating in acts of money laundering," they added.

Last week, an alliance of news outlets, including the Guardian, Le Monde, CBS and the International Consortium of Investigative Journalists, released information gleaned from around 60,000 files that suggested the bank, and its Swiss subsidiary, was engaging in various practices to enable clients to circumvent taxes. According to the files, some of the individuals who availed of the bank's services included "high-risk" people, such as international criminals, arms dealers and "traffickers in blood diamonds."

The files were originally leaked by whistleblower and former HSBC IT worker Herve Falciani, and included accounts from 106,000 clients in 203 countries.

SwissLeaks: How banking giant HSBC helped 100,000 rich clients dodge taxes. Read more here.

Franco Morra, the CEO of HSBC in Switzerland, announced that "these disclosures about historical business practices are a reminder that the old business model of Swiss private banking is no longer acceptable." He also declared that the bank would be closing down accounts held by clients that "did not meet our high standards."

It is not illegal to use offshore bank accounts or engage in practices that minimize the amount of tax payable through legitimate means, though deliberately concealing funds is a criminal offense.

In an apology published in UK newspapers on Sunday, HSBC chief executive Stuart Gulliver said recent coverage had been "painful."

The open letter — which was addressed to the bank's customers, shareholders and staff — said: "The media focus has been on historical events that show the standards to which we operate today were not universally in place in our Swiss operations eight years ago."

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He added: "We must show we understand that the societies we serve expect more from us. We therefore offer our sincerest apologies."

HSBC has also come under attack for its reaction to media coverage of the story.

The Guardian revealed that HSBC stopped advertising with them following their coverage of the scandal. This came after the revelations from former Telegraph chief political commentator Peter Oborne on Tuesday, who announced that he resigned from the paper following their refusal to print coverage that would offend HSBC, a client that one Telegraph executive reportedly described to him as being "the advertiser you literally cannot afford to offend."

HSBC is operative in 74 countries on six continents, and serves around 52 million customers through 6,200 offices. The bank's headquarters are in London. As well as the Swiss probe, it now faces criminal investigations in the US, Argentina and France, though not in the United Kingdom.

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Whistleblower Falciani claimed he had offered the information to UK tax body Her Majesty's Revenue and Customs (HMRC) in 2008 via email, but they had failed to reply.

Lin Homer, HMRC's current chief executive, told British parliamentarians on Wednesday that she believed that government officials must have known about the data in 2010, but accused them of missing opportunities to examine some of the highlighted accounts. However, she said that since then the body has been working hard to process the data, and that 300 civil servants have been examining it closely. This has resulted in the identification of the most serious cases — many of which may now proceed to criminal prosecutions. 

So far, the UK government has achieved one conviction. At least £135 million ($208 million) in unpaid tax, fines, and interest has also been repaid to the government since the investigations began.

These results are being echoed in other countries too, with the Guardian reporting that French tax authorities have regained $308 million, while the Spanish government has regained $277 million.

When asked whether he thought HMRC had acted appropriately in dealing with the information, a spokesperson for British Prime Minister David Cameron said: "HMRC, as I see it, took the information that they had, they went through the 6,000 or so cases, they whittled that down to 3,000 specific ones to look at, went after those who were non-compliant to recoup them and launched prosecutions where they could. So they did look at and take forward action on prosecutions when they went through this HSBC data."

He added: "The people who should have paid tax have had to pay tax. And then they did what they could with the restrictions that were imposed on them by the French on the information which has led to one prosecution so far. Clearly those restrictions have now been eased and, as HMRC said last week, they will therefore continue to have discussions with prosecuting authorities about any further action that should be taken."

It's not the first time HSBC has courted controversy. The bank ran into trouble in 2012 after it was discovered that money was being laundered through it by Mexican drug cartels, some of whom created "specially shaped" boxes, tailored for HSBC bank teller windows. 

The bank was forced to settle with US prosecutors for $1.92 billion.

Follow Sally Hayden on Twitter: @sallyhayd

Main image: Attorney General Oliver Jornot leaves HSBC Private Bank in Geneva.